High Stakes for Patent Holders, Challengers in SCOTUS “Oil States” Case

Kaminski_Jeffri_LRFeatured Expert Contributor, Intellectual Property—Patents

Jeffri A. Kaminski, Venable LLP

The U.S. Supreme Court is set to hear arguments in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, which could strike a devastating blow to extant patent procedure. On November 27, the Court will consider Oil States’ challenge to the constitutionality of the Inter Partes Review (“IPR”) process used by the Patent and Trademark Office (“PTO”) to scrutinize the validity of already-issued patents. While this is not the first constitutional challenge to IPRs, Oil States marks the first time the Supreme Court will confront the issue.

IPR came into existence five years ago and revamped many substantive and procedural aspects of patent law. The IPR itself is a trial proceeding conducted by the Patent Trial and Appeals Board (“PTAB”) to review the validity of issued patent claims. To institute an IPR, the challenger need only show a reasonable likelihood that they would prevail with respect to at least one challenged claim. Decisions are typically issued within a year and may be appealed directly to the Federal Circuit.

Though IPRs are a relatively new procedure, they have become incredibly popular as an expedient and cost-effective tool to reexamine claim validity without resorting to litigation. A common strategy for entities accused of patent infringement is to file IPR petitions to short circuit a pending or threatened litigation; a responsive IPR filing allows the would-be defendant to first challenge the validity of the patent at the PTAB without enduring a full-scale patent case in district court.

By focusing exclusively on claim validity in advance of litigation, IPR ideally save all parties time, costs, and other resources by either avoiding an unnecessary litigation or by having already construed and validated the claims. However, many patent holders do not view IPRs so positively. To a patent holder, IPRs at best validate their already existing patent (which is presumed valid after issuance)—at worst, an important patent is now invalid and essentially valueless.

Despite patent holder concerns, IPR results run the gambit from wholesale invalidation of the patent, to invalidation of singular claims, and even an outright refusal to hear the petition in the first place. Oil States’ counsel notes that the PTO has received nearly 7,000 IPR petitions since enactment. Oil States questions the adjudicative power of the PTAB administrative law judges to invalidate claims: “Since inter partes review became available in 2012, the agency has … issued over 1500 final judgements, … about 1300 of which have invalidated at least some of the challenged claims.” That equates to nearly 1 out of every 5 petitions resulting in the invalidation of an existing claim. For patent holders like Oil States, 1 in 5 odds that your presumed-valid patent will be invalidated, in part or in full, by the PTAB in an IPR is not appealing.

Oil States argues that the establishment of IPRs to adjudicate patent validity violates Article III of the Constitution’s separation-of-powers requirements, as well as the 7th Amendment’s jury-trial guarantee. Both challenges arise out of Congress’s transfer of adjudicative power over patent rights from Article III courts, which have historically addressed patent disputes, to the PTO’s administrative law judges who are funded and managed by an administrative agency within the inherently political Executive Branch.

Oil States does not take issue with the invalidation of patent rights generally; rather, their concern lies in the extinguishing of such private rights without the constitutional protections of an impartial adversarial proceeding afforded by an Article III court and jury.

Appellee Greene’s Energy responds that patent rights are not private rights at all; they are public rights, meaning they would fall within a narrow exception to Article III court jurisdiction. Greene’s Energy argues that IPRs and other reexamination proceedings conducted by the PTO are either derived from a federal regulatory scheme or that the expert government agency is essential to the determination of a specific, limited issue (i.e., patent validity)—either of which results in patents being construed as public rights over which there is not Article III or 7th Amendment protection. They also assert the legislative intent underpinning the establishment of IPRs confirms patents’ place in the public sphere.

Regardless of how the Court rules, Oil States stands to make a substantial impact in the patent and technology communities. If the Court decides the issue squarely as Oil States has framed it, they could either trigger the downfall of the entire IPR system, or put an end to the constitutional challenges against PTO administrative adjudication for the foreseeable future. On the one hand, patent holders are likely to be overjoyed with a ruling for Oil States because it would dramatically increase the barriers for opponents to bring validity challenges against their already-issued patents.

Conversely, a finding that IPRs are unconstitutional is likely to significantly raise the average cost of patent challenges—and thus increase incentives to settle cases earlier or avoid litigation altogether, even where a challenge is proper in the interest of justice. Such a ruling may also bring into question the validity of patent claims previously invalidated through an IPR, which could cause substantial confusion within industries as well as uncertainty regarding legal filings and procedures.

We will publish a post-oral-argument commentary in early December.

*Editor’s Note: Washington Legal Foundation Legal Policy Advisory Board member Allyson Ho is Counsel of Record for the Petitioner in Oil States

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